Last December, the President of the European Central Bank (ECB), Christine Lagarde, had publicly expressed the institution’s goal of being ahead of the game in terms of CBDC development. In a recent interview with French enterprise magazine Challenges, Lagarde once again shared the ECB’s determination to play an active role in the global crypto industry. However, she emphasized that the ECB’s plans would be pursued without crowding out private initiatives.
As the number of businesses and individuals adopting innovative financial technologies continues to increase on a global scale every day, the more the ECB should intensify its effort in looking into the potential benefits and drawbacks of a central bank digital currency. But while the ECB intends to be “ahead of the curve,” Lagarde said that they are taking a meticulous approach to ensure that other financial solutions and initiatives led by private entities in the Euro area wouldn’t be compromised.
As part of the preparation, the ECB established a crypto-focused task force that would aid central banks across Europe to gain an understanding of the merits and feasibility of CBDCs.
It’s worth noting that the rise of interest on CBDCs had been catalyzed by Facebook when it unveiled its Project Libra. With cryptocurrencies entering the global monetary system coupled with such ambitious private projects, most central banks and governments around the world fear that it might be the end of physical cash. Multiple studies have seen a considerable decline in the usage of fiat currencies, particularly in cross-border transactions.
China, on the other hand, revealed last year that it has already spent five years on the development of its CBDC. The Chinese government, based on previous industry accounts, might be the first-ever nation to release a digital version of its money. Notably, news about the digital yuan only came out last year.
In the interview, Lagarde also admitted that CBDCs could have a significant impact on the financial sector landscape, as well as the global monetary policies. But while the bank is aware of the potentials of cryptocurrencies in addressing many of the persistent issues in the existing financial system, Lagarde stressed that they also come with risks.
In one of her interviews last month, the ECB president had expressed her concern about Libra. She said that Facebook might take advantage of its digital platform to shut out stablecoin competitors in an attempt to gain dominance.